One week after it appeared that all hope might have been lost in its bid to acquire the Chicago Board of Trade, Atlanta-based IntercontinentalExchange Inc. (ICE) on Wednesday announced it has sweetened the deal by reaching an agreement with the Chicago Board Options Exchange (CBOE), which could help settle a long-running legal dispute between the options trading exchange and cross-town rival CBOT.

Under ICE's agreement with CBOE, CBOT full members holding CBOE exercise rights would receive $500,000 in value for each right, or up to $665.5 million in the aggregate, to resolve the issues relating to the exercise rights in a manner that would make clear that following a merger between ICE and CBOT, full members of CBOT holding the required interests would be compensated for the loss of the exercise right.

Consideration would be paid equally by CBOE and ICE, with holders of exercise rights being entitled to receive cash and/or debt securities convertible into both stock of the newly combined ICE/CBOT Holdings and common shares of CBOE after its demutualization. The exclusive agreement between ICE and CBOE is contingent on the completion of the proposed merger of ICE and CBOT Holdings. ICE and CBOE also announced that they have entered into an agreement in principle for a broad commercial partnership, including technology and product development, and access to the distribution capabilities of each exchange.

ICE was quick to point out that the rival bid for CBOT by Chicago Mercantile Exchange parent CME Holdings provides no value for the exercise right eligibility of CBOT members, and "no certain resolution" to the ongoing issue.

Earlier this month, CBOT Holdings board of directors and its special transaction committee unanimously reaffirmed their recommendation that CBOT Holdings shareholders vote in favor of the merger agreement with CME and also concluded that the unsolicited proposal submitted by ICE was "not superior" to the revised CME transaction (see Daily GPI, May 14).

CME first publicly approached CBOT with its $8 billion offer in October (see Daily GPI, Oct. 18, 2006). In March, ICE proposed a $9.9 billion stock-for-stock transaction for CBOT (see Daily GPI, March 16; March 23). CME's revised bid Friday was valued at $9.2 billion.

"This strategic agreement would resolve existing litigation and uncertainty for both CBOT and CBOE members, while unlocking substantial value for CBOT members, many of whom remain CBOT Holdings stockholders," said ICE CEO Jeffrey C. Sprecher. "It also frees CBOE to pursue a demutualization for the benefit of its members, and importantly, accelerates ICE's ability to deliver value in options products for our stockholders and customers."

CBOE CEO William J. Brodsky said, "We are pleased that ICE sought to address the exercise right issue and we are delighted to participate in a proposal that provides significant benefits for each organization. The offer provides CBOT members with substantial value, liquidity, and for those who choose, equity participation in CBOE. This is a unique opportunity to provide certainty for both CBOE and CBOT members, and to remove an obstacle that has impeded progress for members at both exchanges."

Sprecher noted that ICE's exclusive agreement with CBOE affirms his company's previously stated intention of providing a constructive resolution to the long-running dispute. "We are eliminating a costly and potentially open-ended distraction that would otherwise persist following a completed merger between ICE and CBOT," he said. "We believe this agreement enhances our already superior proposal to merge with CBOT and underscores ICE's innovation and leadership."

He added, "ICE stockholders stand to benefit through an enhanced offer for CBOT as well as a long-term cooperative relationship with the world's premier options exchange. The transaction structure -- in which ICE and CBOE jointly share the cost of resolving the member rights issue -- is a highly efficient use of capital."

In addition to providing a mechanism for settling the long-standing CBOE exercise rights dispute, the tentative ICE and CBOE agreement to collaborate on initiatives includes:

"We have carefully listened to both the CBOT members and ICE stockholders throughout this process," Sprecher added. "We are confident that today's announcement makes our proposal to merge with the CBOT even more compelling. In addition, our proposed business partnership with CBOE would benefit ICE stockholders by accelerating ICE's existing growth prospects and creating an enhanced market position for the combined ICE/CBOT."

ICE reaffirmed Wednesday that it will hold a meeting for CBOT members to discuss the benefits of an ICE/CBOT combination, including the agreement between CBOE and ICE, in Chicago at 3:30 p.m. CDT on Thursday (see Daily GPI, May 29). For more information visit www.theicecbot.com.

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